Brace for more: time has come for hard decisions, says PM

"Money does not grow on trees." This was the straight and stern message Prime Minister Manmohan Singh put across in his televised address to the nation on Friday evening.

"I am speaking to you tonight to explain the reasons for some important economic policy decisions the government has recently taken. Some political parties have opposed them. You have a right to know the truth about why we have taken these decisions," Singh said in his address while explaining the logic behind the recent tough economic decisions.

Why diesel price was raised?

"We import almost 80 percent of our oil, and oil prices in the world market have increased sharply in the past four years. We did not pass on most of this price rise to you, so that we could protect you from hardship to the maximum extent possible," the prime minister said.

Hard decisions are not over yet. PTI

Singh said the subsidy on petroleum products was fast increasing the pressure on the exchequer.

"It was Rs 1 lakh 40 thousand crores last year. If we had not acted, it would have been over Rs 200,000 crores this year," the prime minister said.

"We raised the price of diesel by just Rs 5 per litre instead of the Rs 17 that was needed to cut all losses on diesel. Much of diesel is used by big cars and SUVs owned by the rich and by factories and businesses. Should government run large fiscal deficits to subsidise them?" Singh asked the nation justifying the hike.

However, the prime minister tried to help people absord the diesel shock by talking about the cut in petrol taxes.

"We reduced taxes on petrol by Rs 5 per litre to prevent a rise in petrol prices. We did this so that the crores of middle class people who drive scooters and motorcycles are not hit further," he said.

Why the cap of six on subsidised LPG cylinders?

"Almost half of our people, who need our help the most, actually use only six cylinders or less. We have ensured they are not affected. Others will still get six subsidised cylinders, but they must pay a higher price for more," Singh said.

"We did not touch the price of kerosene which is consumed by the poor," he said, in an attempt to project the government as concerned for the poor.

Justifying the hikes, the prime minister also sought to compare the prices with neighbouring countries.

"You should know that even after the price increase, the prices of diesel and LPG in India are lower than those in Bangladesh, Nepal, Sri Lanka and Pakistan," the prime minister said.

"The total subsidy on petroleum products will still be Rs 160 thousand crores. This is more than what we spend on health and education together. We held back from raising prices further because I hoped that oil prices would decline," he said.

Why FDI in multi-brand retail is allowed?

"Some think it will hurt small traders. This is not true," the prime minister said in his address strongly defending the government's decision to permit FDI in multi-brand retail.

"Organised, modern retailing is already present in our country and is growing. All our major cities have large retail chains. Our national capital, Delhi, has many new shopping centres. But it has also seen a three-fold increase in small shops in recent years," Singh said.

"In a growing economy, there is enough space for big and small to grow. The fear that small retailers will be wiped out is completely baseless," he said, seeking to assure the trading class.

Singh sought to stress in his address that FDI in the retail sector will help the country's farmers.

"We should also remember that the opening of organised retail to foreign investment will benefit our farmers. According to the regulations we have introduced, those who bring FDI have to invest 50% of their money in building new warehouses, cold-storages, and modern transport systems," the prime minister said.

"This will help to ensure that a third of our fruits and vegetables, which at present are wasted because of storage and transit losses, actually reach the consumer. Wastage will go down, prices paid to farmers will go up and prices paid by consumers will go down," he said.

Singh said that "organised retail will also create millions of good quality new jobs".

Sounding a warning to those opposed to the decision, he said, "We recognise that some political parties are opposed to this step. That is why state governments have been allowed to decide whether foreign investment in retail can come into their state. But one state should not stop another state from seeking a better life for its farmers, for its youth and for its consumers."

Flashback to 1991

The prime minister also referred to 1991 when as foreign minister he took the bold decision to open up the Indian economy.

"The last time we faced this problem was in 1991. Nobody was willing to lend us even small amounts of money then. We came out of that crisis by taking strong, resolute steps. You can see the positive results of those steps. We are not in that situation today, but we must act before people lose confidence in our economy," Singh said.

"In 1991, when we opened India to foreign investment in manufacturing, many were worried. But today, Indian companies are competing effectively both at home and abroad, and they are investing around the world. More importantly, foreign companies are creating jobs for our youth -- in Information Technology, in steel, and in the auto industry. I am sure this will happen in retail trade as well," the prime minister said.

"I know what happened in 1991 and I would be failing in my duty as prime minister of this great country if I did not take strong preventive action," the prime minister said in no uncertain terms.

Comparison with world economy

"The world is not kind to those who do not tackle their own problems. Many European countries are in this position today. They cannot pay their bills and are looking to others for help. They are having to cut wages or pensions to satisfy potential lenders," the prime minister said.

Seeking support from the Indian citizens, the prime minister said, "I am determined to see that India will not be pushed into that situation. But I can succeed only if I can persuade you to understand why we had to act."

However, Singh said it was difficult to tackle the situation due to the global economic crisis.

"The challenge is that we have to do this at a time when the world economy is experiencing great difficulty. The United States and Europe are struggling to deal with an economic slowdown and financial crisis. Even China is slowing down," he said. "We too have been affected, though I believe we have been able to limit the effect of the global crisis."

But the prime minister sought to give an air of optimism as well.

"We are at a point where we can reverse the slowdown in our growth. We need a revival in investor confidence domestically and globally. The decisions we have taken recently are necessary for this purpose," he said.

Restoring investor confidence

Singh categorically said that these decisions were necessary to maintain investors' confidence in India.

"If we had not acted, it would have meant a higher fiscal deficit, that is, an unsustainable increase in government expenditure vis-a-vis government income. If unchecked, this would lead to a further steep rise in prices and a loss of confidence in our economy," he said.

"The prices of essential commodities would rise faster. Both domestic as well as foreign investors would be reluctant to invest in our economy. Interest rates would rise. Our companies would not be able to borrow abroad. Unemployment would increase," the prime minister said.

Why now?

"No government likes to impose burdens on the common man. Our government has been voted to office twice to protect the interests of the aam admi," the prime minister said while trying to pacify the common people's outrage.

But he also reminded people of the government's duty.

"At the same time, it is the responsibility of the government to defend the national interest, and protect the long term future of our people. This means that we must ensure that the economy grows rapidly, and that this generates enough productive jobs for the youth of our country. Rapid growth is also necessary to raise the revenues we need to finance our programmes in education, health care, housing and rural employment," he said.

Note of hope, appeal to people

"The UPA government is the government of the aam aadmi," Singh said in an attempt to establish a connection with the common people.

"In the past eight years our economy has grown at a record annual rate of 8.2%. We have ensured that poverty has declined much faster, agriculture has grown faster, and rural consumption per person has also grown faster," he said.

"We need to do more, and we will do more. But to achieve inclusiveness we need more growth. And we must avoid high fiscal deficits which cause a loss of confidence in our economy," the prime minister said, hinting at even tougher measures.

"I promise you that I will do everything necessary to put our country back on the path of high and inclusive growth. But I need your support. Please do not be misled by those who want to confuse you by spreading fear and false information. The same tactics were adopted in 1991. They did not succeed then. They will not succeed now. I have full faith in the wisdom of the people of India," he said.

"The time has come for hard decisions. For this I need your trust, your understanding, and your cooperation. As prime minister of this great country, I ask to each one of you to strengthen my hands so that we can take our country forward and build a better and more prosperous future for ourselves and for the generations to come."